Validus Estimates Cat Loss from Flood - Analyst Blog

Bermuda-based insurer, Validus Holdings Ltd ( VR ) expects to record a catastrophe loss of $69.6 million in the second quarter, resulting from heavy flooding in Central Europe.

This loss is net of reinsurance, effects of reinstatement premiums, retrocessional and other recoveries. Validus estimates the industry loss from this event to be in the range of $4-$5 billion.

The entire estimated loss from severe rainfall in Central Europe during May and June 2013 is expected to be split among the three operating segments of Validus- Validus Re, Talbot and AlphaCat. Validus Re will bear majority of the loss that is $63.1 million or approximately 90.7% of the loss. Talbot will bear $6.4 million or approximately 9.2% of the estimated loss. The remaining $0.1 million or 0.1% of the loss will be borne by AlphaCat.

However, owing to the uncertainties and limitations involved in the event information, actual losses might vary from the estimate. Such estimate revision will be recorded by the company in the period of its occurrence.

Validus' first-quarter operating earnings increased 108% year over year to $1.83 per share and outpaced the Zacks Consensus Estimate of $1.39 per share owing to improved performances in all its three operating units.

Additionally, Validus delivered positive earnings surprise in each of the last 4 quarters with an impressive average beat of 32.7%. The improved performances during the first quarter came on the back of lower catastrophe activities. As a result, overall combined ratio in the first quarter improved 2410 basis points to 60.5%.

However, the picture is expected to alter in the upcoming period owing to huge losses from the European floods. The Zacks Consensus Estimate for the second quarter of 2013 stands at $1.38 per share representing a year-over-year decline of 16.4%.

However, if no significant catastrophe events are reported during the rest of the year, this estimated loss might be mitigated and the company would come up with better numbers. The Zacks Consensus Estimate for full year 2013 is currently pegged at $5.40 per share, representing a year-over-year improvement of 65.8%.

Validus currently carries a Zacks Rank #3 (Hold). Among others in the industry, Brown & Brown Inc. ( BRO ), Marsh & McLennan Inc. ( MMC ) and eHealth Inc. ( EHTH ) carry a favorable Zacks Rank #2 (Buy) and appear impressive.

BROWN & BROWN (BRO): Free Stock Analysis Report

EHEALTH INC (EHTH): Free Stock Analysis Report

MARSH &MCLENNAN (MMC): Free Stock Analysis Report

VALIDUS HOLDING (VR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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